Deal Radar 2008: Baynote

I have written a few pieces on recommendation systems that help sites personalize their offerings. As you know, my thesis on Web 3.0 heavily centers around personalization. In this installment of the Deal Radar, we will be looking at yet another recommendation technology company.

The Baynote Collective Intelligence Platform provides websites with peer-driven recommendation services for their visitors. Using a technology that is rooted in the social sciences, Baynote helps sites offer their visitors the most appropriate content links, videos, and product recommendations with the intention of increasing a site’s sales and profits. These recommendations and search results are based on a visitor’s current intent and not just their past behavior.

The company was founded in November 2004 by Jack Jia (CEO), Rob Bradshaw (Chief Architect), and Scott Brave (CTO). Before founding Baynote, Jia spent eight years as the founding SVP of Engineering and CTO for Interwoven, a top content management software provider. Jia’s search for a way to implicitly tap the wisdom of website visitors led him to Rob Bradshaw, a large-system architect in Silicon Valley, and Scott Brave, a PhD serving as lab manager for the CHIMe (Communication between Humans and Interactive Media) Lab. The company was born out of an idea to look at social and brain science instead of traditional computer science and mathematical algorithms to increase e-commerce.

Baynote has over $15 million in funding so far. Early on, the company was self-funded. They raised a $4 million Series A funded by Chess Ventures, JK&B Capital and Hummer Winblad Venture Partners in March 2005 and a $10.75 million Series B led by Disney’s Steamboat Ventures with participation from members from the previous round in April 2007. The company still has a large portion of this cash on hand and is not considering another round of financing anytime soon. Baynote is based in Cupertino, California and has approximately 50 employees.

Since its product launch two years ago, Baynote boasts some impressive statistics. Year-over-year revenue growth is more than 400%. The company has acquired over 120 major customers, representing nearly 200 well known websites. CEO Jia said that Baynote expects to achieve profitability in 2009. Due to the large traffic from customers such as Expedia, NASA, and Fox, traffic and recommendation volume is billions of transactions a month.

Aside from those mentioned above, Baynote’s customers include a range of major online retailers, media portals, and enterprises like Urban Outfitters, Motorola, Juniper Networks, and The Knot. The company saw tremendous customer traction in Q3, adding dozens of new customers and signing many renewals with current customers. Bookings have increased 70% from Q2 2008 to Q3 2008, and annual bookings have grown 200% in the past year. New customers include one of the largest US wireless carriers and online stores for two of the world’s top media conglomerates.

The recommendation industry includes more than 30-40 companies such as Aggregate Knowledge, Loomia, Strands, and Outbrain. Most of these generate recommendations based on clickstream analysis or feedback from customers via reviews. Baynote differs by targeting visitors based on their intent, which is validated by the collective wisdom of those before them with the same intent. A Yankee Group report on VentureBeat says that consolidation in the industry is likely with only three to four personalization engines in each major market. But for now, I am pleased to see a lot of different players attacking the problem with different points of view.

Baynote’s built-in measurement service reports in real time the average order value and net revenue lifts generated on customers’ sites. For example, e-commerce sites see an average 20% increase in revenues and 30% increase in profit in just weeks, and media sites see an average 300% increase in visitor engagement. Baynote’s growth comes from direct sales, OEM agreements, and VAR partnerships.

Baynote is delivered as SaaS and can be ready to use by websites in just days without any enterprise software installations. The company charges a monthly fee, structured as an annual contract. A standard customer fee ranges from $2,000-$10,000 per month. Baynote did not give details on revenue. Regarding market size, Jia said, “We’ve done some research based on our own customer successes, and if you multiply average pricing by the number of customers available, you’re talking about a multibillion dollar market. That multibillion dollar market of course has to go through its adoption cycles, but I would say that our market is probably hundreds of millions of dollars today, and in two to four years it could be over a billion or two.” The company has no exit plans yet and is financially secure for now.

Recommended Readings:

Towards Personalization: Strands Founder Francisco Martin
The Find: A+ on Vertical Search
Deal Radar 2008: Coremetrics

This segment is a part in the series : Deal Radar 2008